Africa lagging behind in trading within its borders – ECA Report

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UNECA director for Regional Integration and Trade Division Dr Steven Karingi
UNECA director for Regional Integration and Trade Division Dr Stephen Karingi

Staff Writer

African countries continue to trade more with the outside world than among themselves, findings of an Economic Commission for Africa (ECA) assessment report on progress made on regional integration in the context of the COVID-19 pandemic have revealed.

The report was presented during the 39th ECA Committee of Experts of the Conference of African Ministers of Finance, Planning and Economic Development currently underway in Addis Ababa, Ethiopia.

According to the report findings presented by UNECA director for Regional Integration and Trade Division Dr Steven Karingi, the European Union is taking the largest share of the market accounting for 29.8 percent of total trade in 2018.

The trend is, however, changing following Brexit and also due to increasing trade between China and Africa.

According to a statement, UNECA urged African countries to adopt policy measures that encourage green investments aimed at increasing productivity to facilitate a durable recovery from the coronavirus crisis and achieve sustainable industrialization.

Dr Karingi also said the COVID-19 had severely disrupted the implementation of regional integration initiatives, including the African Continental Free Trade Area (AfCFTA), particularly trade through national border closures.

“Implementation of regional integration continues to be hampered by governance, peace and security challenges,” Dr Karingi.

“Digitalization is key in maintaining trade competitiveness and enabling effective participation in cross border e-commerce.”

The report shows that in 2018, Africa accounted for only 2.6 percent of global trade which is a slight increase from 0.2 percent from 2017.

Intra-African trade increased to 16.1 percent in 2018 ($159.1bn), up from 15.5 percent in 2017. Globally, output slightly decreased to 3.6 percent in 2018 from 3.8 percent in 2017.

Dr Karingi noted that before the COVID-19 pandemic there was a rise in intra-trade in Africa, but compared to other regions, it remained low.

“Trade, economic movement of people and services, infrastructure, governance, peace and security are the key pillars of regional integration,” he noted, adding that many countries were doing a lot to implement the ACFTA.

“Peace and security create environments conducive to the pursuit of regional integration and the attainment of broader continental development objectives.”

He said that progress on integration was uneven, adding the free movement of people was critical for the realization of the ACFTA.

The report presents an assessment of progress on regional integration in Africa with a particular focus on progress made by RECs in key dimensions of regional integration, including macroeconomic integration; productive integration; trade integration; infrastructure integration; the free movement of people; and governance, peace and security.

In all the RECs, Dr Karingi said, productive integration was their poorest performing dimension of regional integration.

“Most of the communities are lagging in terms of intra-regional intermediate exports and imports, and are recording a very low merchandise trade complementarity index,” he said, adding that productive integration was central to enhancing industrialization and trade.

“Productive integration is also critical to integrating African economies into regional value chains and global value chains, as envisioned in Agenda 2063.”

According to the report, the Arab Maghreb Union (AMU) and East African Community (EAC) are taking the lead in productive integration, with index scores of 0.449 and 0.434, respectively, while ECOWAS is the least integrated regional bloc in the productive integration dimension, with an index score of 0.220.

Despite the low performance of the majority of the RECs on productive integration, there were several initiatives being carried out to improve the situation, including some that are supported by ECA.

Economic Community of Central African States (ECCAS) and EAC are the highest-performing communities in terms of macroeconomic integration, with scores of 0.684 and 0.660, respectively, on the index.

Dr Karingi said the ECA would continue to support RECs in mainstreaming and boosting intra-African trade in their programmes and policies, building on the collaborative work on regional industrialization, as has already been initiated in SADC and ECOWAS; broaden its capacity-building programme on the use of macroeconomic and forecasting models in economic planning and development, to empower member States and RECs; support the AfCFTA ratification drive and implementation, including through awareness-raising programmes and developing national implementation strategies.

Meanwhile, UNECA has urged African countries to adopt policy measures that encourage green investments aimed at increasing productivity to facilitate a durable recovery from the coronavirus crisis and achieve sustainable industrialization.

According to Hopestone Kayiska Chavula, Officer In-Charge of the Macroeconomic Analysis Section in the think tank’s Macroeconomics and Governance Division, said countries also need to support small to medium scale enterprises (SMEs) and strengthen social protection systems to revitalize livelihoods.

“Strengthening health systems, including through the establishment of regional state of the art health centres is also critical,” he said, adding countries also need to build on and strengthen existing monitoring and evaluation and statistical systems to continually assess and refine mitigation and recovery measures.

“There is need for support from the international community to address liquidity constraints and promote recovery,” said Mr. Chavula. This can be done through new issuance and reallocation of Special Drawing Rights (SDRs), lower cost of credit, orderly debt restructuring and recapitalization of Multilateral Development Banks (MDBs).

He said the COVID-19 had significantly affected social and economic development progress on the continent.

“Much of the progress achieved in recent years in education, health and poverty eradication has been halted or reversed by the COVID-19 pandemic,” he said, adding the ECA estimates that between 49 and 161 million people will fall into deep poverty as a result of the crisis.”

Africa’s GDP is estimated to have contracted in 2020 despite a recovery in the 3rd and 4th quarters of 2020 with a positive 2021 outlook.

Fiscal deficits have widened due to increased government expenditure to halt the spread of the pandemic, with many more African countries at risk of debt distress as a result.

Accommodative monetary policies have been maintained to cushion the negative effects of the pandemic on economic activity despite inflationary pressure in some countries, said Mr. Chavula.

African trade declined but is expected to increase with the implementation of the AfCFTA.

“Access to concessional financing will be vital in restoring lives and livelihoods and regaining momentum towards achieving the sustainable development goals and Agenda 2063,” Dr Chavula.

Real GDP growth remained subdued on the continent mainly due to the downside risks associated with the second wave of infections, lower commodity prices and significant fiscal risks as well as conflicts in some countries.

2021 looks positive, Dr Chavula said, due to the availability of COVID-19 vaccines and improved economic activity in the 4th quarter of 2020, holiday and travel expenditure.

On risks and uncertainties, he said the second wave of infections, expansionary fiscal measures and rising debt levels posed downside risks to many African countries’ growth. Post-election instability and social unrests, which may in part have emerged from pandemic-related economic hardships and lockdown fatigue, have induced uncertainties in some countries.

Climate change risks, particularly as several countries are at high risk of extreme weather events, could also undermine economic growth, according to Dr Chavula.

On the other hand, the pandemic has created an opportunity for climate resilient green growth as an opportunity to drive recovery.

The theme of this year’s Conference of Ministers is Africa’s Sustainable Industrialization and Diversification in the Digital Era in the Context of COVID-19.

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